Westfield heads for new pastures

If you're struggling for sleep as winter settles in, Westfield Corporation has come up with a solution in the form of a 742-page ‘booklet' on its merger with Franco-Dutch property company Unibail-Rodamco, announced late last year.

For each security they own, Westfield securityholders will receive a combination of US$2.67 in cash plus 0.01844 Unibail-Rodamco shares. Additionally, for every 20 securities they own, they'll get a share in OneMarket (more on this below).

The new combined entity will have a primary listing in Paris and Amsterdam, with a secondary listing on the ASX by way of Chess Depositary Interests (CDIs), which will each be worth one-twentieth of a share in Unibail-Rodamco. Existing Westfield securityholders will be given CDIs at a rate of 20 CDIs for every Unibail-Rodamco share to which they are entitled.

It's been done this way to make the deal more palatable for Australian shareholders who have historically preferred lower priced shares, as Unibail-Rodamco shares currently trade at around €196 (A$310) each.

At this stage of the process, it's unlikely that we will see a competing bid. Unibail-Rodamco already owns 4.9% of Westfield and the Lowy family, which own 9.5% of Westfield, is supporting the deal. Additionally, since December 2017 the Australian dollar has weakened against both the US dollar and the euro, which has improved the attractiveness of the bid for Australian investors. We recommend that you vote in favour.

OneMarket

OneMarket is Westfield's retail technology business which designs products – such as live receipts, intelligent parking, shopper profiles, and shopper intelligence – to help bricks and mortar retailers compete with online sales.

It's currently operating at a loss, with no dividends, but will start off with $160 million of net cash if shareholders approve the demerger. It's being excluded from the wider deal as Westfield's board believes there's value in OneMarket's technology that was not being recognised by Unibail-Rodamco.

Tax headache

Each Westfield security comprises three separate units stapled together – in Westfield America Trust, WFD Trust and Westfield Corporation – and this makes evaluating the tax consequences of the deal extremely complex, not least because only the latter qualifies for rollover relief. If you're in any doubt about your situation, you should speak to your tax adviser.

The Australian tax that investors may have to pay will depend on the cost base for their Westfield securities, and how that compares to the consideration they receive, measured in Australian dollars.  

On that basis, Westfield's directors believe that the approximate amount of tax due will be: 

– between A$0.12 cents and A$0.93 cents if the Australian dollar amount of the Scheme Consideration is A$10.00; and
– between A$0.05 cents and A$0.69 cents if the Australian dollar amount of the Scheme Consideration is A$9.00.

In these scenarios, the potential Australian tax payable is materially less than the additional US$2.67 in cash per share being offered by Unibail-Rodamco. However, the precise amount of tax will depend on the specific circumstances of individual investors.

We'll provide ongoing coverage of the Unibail-Rodamco CDIs once they've listed on the ASX. As ever, our recommendation will depend on the price at the time, but we expect it to start as a Hold. Unibail-Rodamco will be one of the world's largest and highest-quality global listed investment trusts, with €62 billion in assets across the USA and Europe, and it will generate earnings growth from development projects currently underway in London, Milan and the USA.

Conversely – and although it will again depend on price – it's likely we'll recommend that investors sell the shares allotted to them in the new ASX-listed OneMarket. The company no doubt has some interesting technologies, but it is fundamentally very different to the property trust that is Westfield. OneMarket is unlikely to pay dividends in the near future and indeed is expected to raise more capital to fund the development of its technology. However, there may be a rush for the exits so it might be worth biding your time. After providing an initial view, we don't expect to cover the stock.

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